Shortfall in solar RPO compliance a challenge: ICRA

NEW DELHI: Inconsistency in solar renewable purchase obligation (RPO) norms across the states and shortfall in RPO compliance are some of the regulatory challenges for the solar energy sector.

"..inconsistency in the solar RPO norms across the states, shortfall in RPO compliance by distribution utilities and absence of stricter enforcement by SERCs continue to remain regulatory challenges for the sector," said ICRA Senior Vice President Sabyasachi Majumdar in a statement.

According to the statement, the State Electricity Regulatory Commissions (SERC) in states such as Maharashtra and Tamil Nadu have recently amended solar RPO norms with upward revision and extension in trajectory period.

Under the RPO, discoms are required to purchase certain proportions of their electricity consumption from renewable energy sources, including solar. This proportion is prescribed by power regulators.

ICRA said the SERC in Tamil Nadu has significantly increased solar RPO norm from 0.5 per cent in 2015-16 to 5 per cent in 2017-18, while SERC in Maharashtra has gradually increased the RPO norm from 0.5 per cent last fiscal to 3.5 per cent in 2019-20 fiscal.

SERCs in 24 states have declared solar RPO targets for this fiscal which vary from 0.2 per cent to 2.5 per cent for the obligated entities (discoms).

Two states with large solar potential - Rajasthan and Gujarat - are yet to announce the solar RPO targets beyond 2016-17. Thus, bringing the RPO norms in line with the solar RPO target of 8 per cent for 2021-22 as per National Tariff Policy (NTP), 2016, remains crucial in ICRA's view.

Despite these regulatory challenges, the projects bid out in the solar sector have been quite large. From January 2016 till date, solar projects with cumulative capacity of about 5,420 MW have been awarded under the state and central government policies, with installation period ranging from 12 to 18 months.

"However, the bid tariffs for these solar PV projects continue to be aggressive with sizeable projects won at a tariff of less than Rs 5 per unit. Ability of such projects to tie-up debt funding in a timely manner remains crucial," said Majumdar.

Viability of such tariffs hinges on structuring of debt with longer tenures, competitive funding costs and the ability of the project developers concerned to keep the cost of modules within the budgeted levels, it said.